- Title: USA: Microsoft and Yahoo join forces on search to counter Google
- Date: 30th July 2009
- Summary: NEW YORK CITY, NEW YORK, UNITED STATES (JULY 29, 2009) (REUTERS) (SOUNDBITE) (English) TOAN TRAN, ANALYST, MORNINGSTAR, SAYING: "To the extent that that Yahoo said they sacrificed an upfront payment to get more of the revenue share I think is just lip service. And given the choice I think Yahoo would have preferred to get one billion or two billion dollars up front but they couldn't because Yahoo didn't really have any other choice other than trying to go it alone"
- Embargoed: 14th August 2009 13:00
- Location: Usa
- Country: USA
- Topics: Industry
- Reuters ID: LVA8F1Q4FZAX50S7XK52XCRZZ2HD
- Story Text: Microsoft and Yahoo have finally found a way to make a deal. The two companies are teaming up in hopes of taking on industry leader Google in the search engine business.
Under the 10 year web search deal, Microsoft's Bing search engine will power searches on Yahoo Sites. Yahoo's sales force will sell premium advertising based on search terms for both companies.
"This is the best and last chance that both Microsoft and Yahoo have at trying to make a dent against Google in the search market," according to Toan Tran of Morningstar.
There is no upfront payment to Yahoo, just a revenue sharing agreement, that gives Yahoo an initial rate of 88 percent of search revenue on its sites for the first five years. Many believe that this was a big concession from Yahoo.
"To the extent that that Yahoo said they sacrificed an upfront payment to get more share I think is just lip service and given the choice I think Yahoo would have preferred to get one billion or two billion dollars up front but they couldn't 'because Yahoo didn't really have any other choice other than trying to go it alone", said Tran.
Google currently has 65 percent market share, compared to Yahoo's 19 percent and Microsoft's 8 percent. The companies said they expect the deal to be "closely reviewed" by regulators, but were "hopeful" it can close in early 2010. Google said on Wednesday only that it was "interested" in the Microsoft/Yahoo partnership, while the chairman of the U.S. Senate antitrust panel said the deal warrants "careful scrutiny."
Because the deal won't close until early next year, Google has time to get ready.
"That gives Google a window of opportunity we think to lock up affiliate partners perhaps at less favorable terms and pricing than Google had received in the past. If they are looking for new business, maybe Google is going to offer more just to insure that they have a more favorable competitive landscape than before this kind of new entrant, or stronger Microsoft is going to make an impact," said Standard & Poor's Analyst Scott Kessler.
But it's still a game of catch up, that will keep both Yahoo and Microsoft on the chase.
Yahoo estimates the deal will boost its annual operating income by about $500 million and yield capital expenditure savings of $200 million. Yahoo also expects the deal to boost annual operating cash flow by about $275 million.
Yahoo reported income from operations of $13 million in 2008, hurt by $487.5 million in goodwill impairment charge and $107 million in restructuring charges. In 2007, operating income was $695 million.
A Yahoo representative said that the deal will result in "redundancies" in Yahoo's staff.
Shares of Yahoo were down $1.89 at $15.33 on Nasdaq, while shares of Microsoft were flat at $23.47. Google shares were down $5.13 at $434.72.
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